Skoll's office is pretty modest for someone who ranks No. 94 on Forbes magazine's list of the world's wealthiest people, with a fortune estimated at $5 billion, much of it nestled in the almost 6.7% stake he still holds in eBay. For his headquarters, he chose a low-slung building on the Beverly Hills/Los Angeles border. Rather than a corner office, Skoll claimed one in a row of cookie-cutter chambers. Sparsely decorated, it's about the size of a single-car garage, with a view of a courtyard filled with birch trees.
With his round brown eyes and quiet air of benevolence, Skoll lacks the in-your-face charisma of other billionaire entrepreneurs. He is polite and soft-spoken, and responds to questions only after a longish pause, as though some internal microprocessor is at work on the answer. And those answers invariably are well thought out. He can also be charmingly frank; one of the first things Skoll does after shaking my hand is to acknowledge that founding Participant was a remarkably poor business decision.
Indeed, conventional wisdom says wealthy outsiders have trouble penetrating Hollywood's gold-leaf carapace. Skoll himself quotes the old saw that the fastest way to become a millionaire in Hollywood is to start as a billionaire. While that sentiment may once have been accurate-both William Randolph Hearst and Howard Hughes were ridiculed by studio heads-the town has opened its doors to outsiders of late, often enlisting their help to finance filmmaker-driven cinema (see "The outsiders," page 33). But Skoll is the rare outsider who's putting his neck on the line by running his own shop.
And he's chosen an inauspicious time to build a new kind of film production company. Hollywood's "domestic" box office (the U.S. and Canada) was $8.9 billion last year, with sales of DVDs more than double that, at $23.4 billion. Factor in $530 million worth of revenue from video-on-demand and cable and the total domestic spending on Hollywood entertainment for all studios totals just $33 billion. For all its cultural sway around the world, Hollywood is not that big an industry. (Microsoft by itself is bigger, at $40 billion in revenue.) And box office is sliding-down 6% in 2005 from 2004. Even once-robust growth in DVD sales has slowed. Whatever the reason for the decline-just-plain-bad movies or more competition from video games and the internet-the slowdown is affecting studios. Despite healthy returns last year, thanks to such hits as Batman Begins and Charlie and the Chocolate Factory, even Warner Bros. Entertainment recently cut 5% of its studio staff. Skoll's summary: "The industry as a whole is stagnant or declining."
As a production house rather than a studio, it's tougher for Skoll's Participant to be profitable. To date, his releases through Participant have been limited to co-financing deals in which the financier ponies up a share of the production budget in exchange for a share of the film's equity. But on such deals, Hollywood isn't the cash factory many believe it to be.
Take a film like Syriana, whose production budget was about $50 million. On top of that, Warner Bros. likely spent in the neighbourhood of $35 million marketing the film. From each dollar that gets spent at the cinema-and after six weeks in wide release, Syriana had made just $44 million in the United States and Canada-about half goes to the theatres. Of the remaining 50 cents, the distributor takes between 10% and 15%. Also taking a cut of the gross is the movie's acting, screenwriting and directing talent; someone of the stature of George Clooney can skim 20% of a movie's revenues on top of their usual eight-figure salary. (That said, Clooney was reportedly paid only $350,000 up front for Syriana.)
Let's say that leaves 25 cents from each dollar spent at the box office. Before a film's equity holders see any of that, that $35 million worth of marketing must be recouped. Then there's interest and ancillaries and taxes and guild fees. And only after all those are paid does the money start flowing to the equity holders. No wonder, then, that Hollywood now considers a film's domestic theatrical release as a loss leader, as advertising for the markets where the real money lies: in DVD sales, which are expected to account for approximately two-thirds of studio revenue in 2005.
"And by the way," says Skoll, "if it's not a risky movie, [the studio's]probably not going to [let the likes of Participant]finance it. They're not going to give up Harry Potter."